Chapter 24 - Measuring the Cost of Living

Substitution bias

Substitution bias

________: when some prices in a basket change disproportionately compared to others.

Consumer Price Index

The ________ (CPI) is used to monitor changes in the cost of living over time.

GDP deflator

The ________ reflects the prices of all goods and services produced domestically.

Core CPI

________: a measure of the overall cost of consumer goods and services excluding food and energy.

Inflation rate

________: the percentage change in the price index from the preceding period.

Bureau of Labor Statistics

________ (BLS): a department that computes and reports the CPI.

Cost of living

________ allowance (COLA): a provision that automatically raises the wage when the CPI rises.

price index

Producer ________ (PPI): a measure of the cost of a basket of goods and services bought by firms.

CPI

The ________ uses a fixed basket to measure values, while the GDP deflator compares the price of currently produced goods and services.

Consumers

________ respond to raised prices by buying less of that product.

Indexation

________: the automatic correction by law or contract of a dollar amount for the effects of inflation.

Consumer price index

________ (CPI): a measure of the overall cost of the goods and services bought by a typical consumer.